Customer education key to cutting insurance fraud
Insurance companies need to do more to prevent customers committing fraud, according to a new report from Insurance Europe, the European insurance and reinsurance federation.
The report, titled Insurance Fraud: Not a Victimless Crime, says a key step is educating customers, who do not necessarily know that what they are doing is fraudulent.
“For example, they may see exaggeration of an otherwise genuine claim as part of the negotiating process,” it states. “Others may commit fraud due to the (mis)perception that insurance is ‘fair game’ or because they see insurance as a ‘grudge’ purchase and want to receive something in return for the premiums they have paid.”
The report says more should be done by insurers to focus on prevention in their earliest interactions with customers.
“As part of the application process, insurers could distribute more information to policyholders about what constitutes fraud, as well as spelling out the consequences,” it states. “Additionally, insurers could make more use of hotlines for reporting fraud and of media campaigns to promote awareness of the amount of fraud and who ultimately pays for it.”
The report said insurers could also make use of behavioural science techniques, such as “nudges” that give statistics for other customers’ honesty at the application stage to prompt consumers to be more honest or “reciprocation” to show what customers get from being honest.
Other fraud reduction tactics highlighted in the report include gathering and sharing intelligence, enforcement by regulatory bodies and law enforcement agencies and investment in counter-fraud governance.
The report states that insurance fraud is constantly evolving, shaped by the technology at the fraudsters’ disposal. In recent years, cyber-enabled fraud has become more prevalent as more insurance business is conducted online. A related trend has been the significant growth in identity fraud, such as a fraudster using personal data to impersonate an innocent policyholder and take out a policy in their name.
Combining the available figures for detected and undetected fraud, Insurance Europe estimated that there were approximately €13billion ($14.4 billion) of fraudulent claims in Europe in 2017.
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